Posts by: WST Expert 1| Wall St. Training

Re: Macro error: compile error in hidden module: thiswork
Hi David, We have just released an update to our WST Macros Add-In. Could you please download version 3.7 from our Free Resources page (http://wallst-training.com/about/resources.html) and let us know... Read More

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by WST Expert 1.

added 11 years ago

RE: DCF Terminal Value Discount Period
Yes, same time period. Whether its whole years or stub years, same. Why? Because perpetuity growth rate method starts with 1+g. So in essence its next years growth that you start to receive. That gets discounted back. The formula you provided correctly is the terminal value as of today, not one year... Read More

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by WST Expert 1.

added 11 years ago

Re: LBO "Super Complex Course"
If you have previously paid for the Quick & Dirty LBO course previously, yes, you can upgrade by paying the difference. Do you know which account representative you previously spoke to?

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by WST Expert 1.

added 11 years ago

Re: Interest Schedule calcs
what is the exact ERROR you receive? Sounds like you have a pre-existing circ, which is why your interest income is zero. We recommend THIS YEAR'S BEGINNING balance which is LAST YEAR'S ENDING balance when avoiding the use of circular reference. For AVERAGE balance (which creates the circ), it woul... Read More

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by WST Expert 1.

added 11 years ago

RE: Adjusting historical financials for non-recurring/XO items
We'll have to direct you to our Complex Trading Comps course online..
that entire class is focused on that and how to correctly capture all the adjustments (we cover 98% of all adjustments you'll ever hit)

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by WST Expert 1.

added 11 years ago

RE: Advanced Valuation Modeling: Share repurchase
Pls view our Share Repurchase video. This course is included free in your login.

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by WST Expert 1.

added 11 years ago

Re: Altman Z-Score
It's not that hard! a quick wikipedia search brings up the formula: http://en.wikipedia.org/wiki/Altman_Z-score once you have the financials in your model, it's a couple of additional ratios to calculate;... Read More

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by WST Expert 1.

added 11 years ago

Re: Power plants company: Free Cash Flow?
If you’re doing a NAV calculation, which it looks like you are, then I would agree to use FCFE because this is the “net” cash flow after tax that the company receives. This falls under a sum-of-parts valuation in which you add up the value of each asset on an equity value basis, after the spec... If you’re doing a NAV calculation, which it looks like you are, then I would agree to use FCFE because this is the “net” cash flow after tax that the company receives. This falls under a sum-of-parts valuation in which you add up the value of each asset on an equity value basis, after the specific asset’s debt load.

FCFF as discussed in class refers to company valuation. So in that context you take the total FCFF of the entire company (which is really the sum of each asset’s FCFF, but you are getting FCFF off financial statements as opposed to each asset’s P&L) and then you apply DCF to get TEV, minus net debt, etc. If you recall I said we generally don’t like FCFE because of the ability to manipulate your net borrowings and thus, alter the value arbitrarily. However, in the case of project finance (power plants and mines for sure), the debt changes (amortization) is usually predetermined and doesn’t change, so the ability to manipulate the numbers is not there.

This is a similar concept in real estate. Value the entire company based on company cash flows vs. NAV build-up of each property after debt load per property. You are currently doing the NAV of each asset and the debt structure of these pre-existing assets won’t change or is pre-determined, so FCFE would be correct in this context. However, for DCF of entire company, you want to use FCFF for sure and then minus out net debt. Let me know if that distinction is clear. In class, we were referring to company value not per asset value.

For future projects that have not yet come online, the question of FCFE vs FCFF boils down to whether or not the debt funding is in place yet. Your concern of not taking into account debt in the future is correct – because you are supposed to. remember, it’s always FCFF, then discount to get TEV minus net debt. The ONLY time FCFE and FCFF will yield the same numbers is when the interest rate, earnings yield AND the wacc are all the same. (review the Share Repurchase video in your WST login).

So to answer your question, I would do the following for future projects: use FCFF. And then assume an average debt/capitalization ratio and subtract that out. So if your UNLEVERED value (using FCFF) is $100 and the average debt load is 30% debt/capital, you can assume $30 of debt, so equity value is $70. This is because you don’t want to get caught (trapped) making assumptions on interest rates that you don’t know yet. Otherwise, you may continue to use FCFE, but you have to assume interest rates and of course, you still need the assume debt level per project.

As I skim through you model though, I see inconsistencies in each plant though. So if I look at your EXISTING plants, sometimes you do equity value off NOPAT and then sometimes TEV off FCF and then minus net debt. Since you’re doing an NAV build-up of each plant, I would just calculate FCFE for each and discount that. add them up as you have it on NAV tab and minus out corporate/parent debt as you did. don’t double count - i.e. b/c you took out interest on per asset basis (hence FCFE), don’t include those asset specific debt that already reduced cash flow.

Let me know if that clears things up. Read More

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by WST Expert 1.

added 11 years ago

RE: Correct Net Debt for TEV
The calculation of Net Debt for valuation purposes is a strict one - total debt - cash + minority interest. Total debt is all forms of interest bearing, negotiated securities, including short term, current portion, long term as well as preferred. Minority interest as well since it is considered ... Read More

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by WST Expert 1.

added 11 years ago

Re: Interest Schedule calcs
AHHHH - we know what happened. somehow the formatting was overwritten with a custom formatting. if you can, try UNDO'ing it until it gives you the error again. then do a CTRL+1 to see what the custom formatting it was using. once you see the custom formatting, you'll see what it's doing. paste it h... Read More

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by WST Expert 1.

added 11 years ago